<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - ACT OF 1934
For the quarterly period ended June 30, 1999
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934]
Commission file number 33-20083
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
in respect of
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEW JERSEY 22-1211670
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
751 Broad Street, Newark, New Jersey 07102-2992
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(800) 445-4571
---------------------------------------------------
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
<PAGE>
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
INDEX TO FINANCIAL STATEMENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
A. PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets - June 30, 1999 and December 31, 1998 3
Statements of Operations and Changes In Net Assets -
Three and Six Months Ended June 30, 1999 and 1998 3
Notes to the Financial Statements 4
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Statements of Assets and Liabilities - June 30, 1999 and
December 31, 1998 6
Statements of Operations - Three and Six Months Ended
June 30, 1999 and 1998 7
Statements of Changes in Net Assets - Six Months Ended
June 30, 1999 and 1998 8
Statements of Cash Flows - Six Months Ended
June 30, 1999 and 1998 9
Schedule of Investments - June 30, 1999 and December 31, 1998 10
Notes to the Financial Statements 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risks 19
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature Page 21
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1A. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1999
(UNAUDITED) DECEMBER 31, 1998
-------------------- --------------------
<S> <C> <C>
Investment in The Prudential Variable Contract
Real Property Partnership (Note 2) $ 82,219,964 $ 111,115,968
-------------------- --------------------
-------------------- --------------------
NET ASSETS, representing:
Equity of Contract Owners (Note 3) $ 57,508,031 $ 60,232,750
Equity of Prudential Insurance Company of America 24,711,933 50,883,218
-------------------- --------------------
$ 82,219,964 $ 111,115,968
-------------------- --------------------
-------------------- --------------------
</TABLE>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
--------------- ---------------
<S> <C> <C>
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 2,511,046 $ 3,505,349
EXPENSES:
Charges to Contract Owners for Assuming Mortality Risk and
Expense Risk and for Administration 236,648 241,133
--------------- ---------------
NET INVESTMENT INCOME 2,274,398 3,264,216
--------------- ---------------
Net Change in Unrealized Loss on Investments in Partnership (1,512,858) (100,223)
Net Realized Gain (Loss) on Sale of Investments in Partnership 105,808 0
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 867,348 3,163,993
--------------- ---------------
CAPITAL TRANSACTIONS:
Net Withdrawals by Contract Owners (Note 4) (3,321,661) (1,868,593)
Net (Withdrawals) Contributions by Prudential Insurance Company of America (26,441,691) 2,414,726
--------------- ---------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (29,763,352) 546,133
--------------- ---------------
TOTAL (DECREASE) INCREASE IN NET ASSETS (28,896,004) 3,710,126
NET ASSETS:
Beginning of period 111,115,968 101,268,264
--------------- ---------------
End of period $ 82,219,964 $ 104,978,390
--------------- ---------------
--------------- ---------------
<CAPTION>
THREE MONTHS ENDED JUNE 31,
1999 1998
--------------- ---------------
<S> <C> <C>
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 1,776,611 $ 1,928,156
EXPENSES:
Charges to Contract Owners for Assuming Mortality Risk and
Expense Risk and for Administration 119,627 121,310
--------------- ---------------
NET INVESTMENT INCOME 1,656,984 1,806,846
--------------- ---------------
Net Change in Unrealized Loss on Investments in Partnership (815,508) (47,004)
Net Realized Gain (Loss) on Sale of Investments in Partnership (77,091) 0
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 764,385 1,759,842
--------------- ---------------
CAPITAL TRANSACTIONS:
Net Withdrawals by Contract Owners (Note 4) (1,712,197) (987,452)
Net (Withdrawals) Contributions by Prudential Insurance Company of America 1,831,824 1,108,762
--------------- ---------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 119,627 121,310
--------------- ---------------
TOTAL (DECREASE) INCREASE IN NET ASSETS 884,012 1,881,152
NET ASSETS:
Beginning of period 81,335,952 103,097,238
--------------- ---------------
End of period $ 82,219,964 $ 104,978,390
--------------- ---------------
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 4 AND 5
3
<PAGE>
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The Prudential Variable Contract Real Property Account ("Real Property Account")
is used to fund benefits under certain variable life insurance and variable
annuity contracts issued by The Prudential Insurance Company of America. These
products are Variable Appreciable Life ("PVAL and PVAL $100,000+ Face Value"),
Discovery Plus ("PDISCO+"), and Variable Investment Plan ("VIP").
The accompanying unaudited financial statements included herein have been
prepared in accordance with the requirements of Form 10-Q and generally accepted
accounting principles for interim financial information. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 1999 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1999. For
further information, refer to the financial statements and notes thereto
included in the Real Property Account's December 31, 1998 Annual Report on Form
10K.
NOTE 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT REAL
PROPERTY PARTNERSHIP
The investment in the Partnership is based on the Real Property Account's
proportionate interest in the Partnership's market value. At June 30, 1999 and
December 31, 1998, the Real Property Account's interest in the Partnership was
38.6% or 3,999,657 shares and 46.2% or 5,481,889 shares, respectively.
The number of shares held by the Real Property Account in the Partnership, the
Partnership share value and the aggregate cost of investments in the Real
Property Accounts' shares held at June 30, 1999 and December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
(UNAUDITED) DECEMBER 31, 1998
------------ -----------------
<S> <C> <C>
SHARES OUTSTANDING: 3,999,657 5,481,889
SHARE VALUE: $20.56 $20.27
COST: $34,095,895 $64,095,895
</TABLE>
NOTE 3: CONTRACT OWNER EQUITY INFORMATION
Contract owner equity at June 30, 1999 and December 31, 1998 by product, were as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
(UNAUDITED) DECEMBER 31, 1998
----------- -----------------
<S> <C> <C>
PDISCO+ $3,808,763 $4,609,069
VIP 2,941,976 3,226,750
PVAL 21,522,909 22,249,213
PVAL $100,000+ FACE VALUE 29,234,383 30,147,718
---------- ----------
TOTAL $57,508,031 $60,232,750
---------- ----------
---------- ----------
</TABLE>
4
<PAGE>
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 4: NET WITHDRAWALS BY CONTRACT OWNERS
Net withdrawals by contract owners for the real estate investment option in The
Prudential Insurance Company of America's variable insurance and variable
annuity products for the six months ended June 30, 1999 and 1998, were as
follows:
<TABLE>
<CAPTION>
JUNE 30,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
PDISCO+/ VIP $ 1,147,158 $ 631,725
PVAL/ PVAL $100,000+ FACE
VALUE 2,174,503 1,236,868
------------ ------------
TOTAL $ 3,321,661 $ 1,868,593
------------ ------------
------------ ------------
</TABLE>
5
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1B. FINANCIAL STATEMENTS
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1999
(UNAUDITED) DECEMBER 31, 1998
------------------------- -------------------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 6/30/99 -- $170,954,397; 12/31/98 -- $170,045,055) $152,915,939 $155,374,462
Real estate investment trusts (cost: 6/30/99 -- $31,875,066;
12/31/98 -- $10,000,005) 31,085,881 11,554,649
------------------------- -------------------------
Total real estate investments 184,001,820 166,929,111
MARKETABLE SECURITIES - At estimated market value
(cost: 6/30/99 -- $3,040,136; 12/31/98 -- $14,967,236) $3,032,357 $14,950,525
CASH AND CASH EQUIVALENTS 27,061,204 58,578,848
DIVIDEND RECEIVABLE 0 167,275
OTHER ASSETS (net of allowance for uncollectible
accounts: 6/30/99 -- $71,600; 12/31/98 -- $66,000) 3,421,263 3,623,513
------------------------- -------------------------
Total assets 217,516,644 244,249,272
------------------------- -------------------------
LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 3,113,383 1,985,400
DUE TO AFFILIATES 782,785 1,598,535
OTHER LIABILITIES 528,229 504,940
------------------------- -------------------------
Total liabilities 4,424,397 4,088,875
------------------------- -------------------------
INVESTMENT COMMITMENTS
Partners' equity 213,092,247 240,160,397
------------------------- -------------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY 217,516,644 244,249,272
------------------------- -------------------------
------------------------- -------------------------
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 10,366,043 11,848,275
------------------------- -------------------------
------------------------- -------------------------
SHARE VALUE AT END OF PERIOD $20.56 $20.27
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE 13
Page 6
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------- ----------------------
1999 1998
--------------------- ----------------------
<S> <C> <C>
INVESTMENT INCOME:
Revenue from real estate and improvements $10,484,907 $12,365,911
Income from interest in properties 0 33,463
Dividend Income from real estate investment trusts 437,069 167,275
Interest on short-term investments 1,052,980 674,152
--------------------- ----------------------
Total investment income 11,974,956 13,240,801
--------------------- ----------------------
EXPENSES:
Investment managment fee 1,345,663 1,391,475
Real estate taxes 1,515,360 1,345,316
Administrative 1,038,915 1,014,144
Operating 1,769,786 1,911,781
--------------------- ----------------------
Total investment expenses 5,669,724 5,662,716
--------------------- ----------------------
NET INVESTMENT INCOME 6,305,232 7,578,085
--------------------- ----------------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS
Net proceeds from real estate investments
sold or exchanged 17,199,969 0
Less: Cost of real estate investments sold or exchanged 14,861,657 0
Realization of prior periods' unrealized
gain on real estate investments sold or exchanged 2,080,673 0
--------------------- ----------------------
Net gain realized on real estate investments sold 257,639 0
--------------------- -----------------------
Change in unrealized loss on real estate investments (3,631,021) (214,908)
--------------------- ----------------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (3,373,382) (214,908)
--------------------- ----------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $2,931,850 $7,363,177
--------------------- ----------------------
--------------------- ----------------------
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------------------------
1999 1998
---------------------- ---------------------
<S> <C> <C>
INVESTMENT INCOME:
Revenue from real estate and improvements $6,857,945 $6,615,864
Income from interest in properties 0 33,463
Dividend Income from real estate investment trusts 269,794 167,275
Interest on short-term investments 426,348 395,081
---------------------- ---------------------
Total investment income 7,554,087 7,211,683
---------------------- ---------------------
EXPENSES:
Investment managment fee 674,919 707,996
Real estate taxes 947,615 731,582
Administrative 570,113 589,751
Operating 844,530 1,013,134
---------------------- ---------------------
Total investment expenses 3,037,177 3,042,463
---------------------- ---------------------
NET INVESTMENT INCOME 4,516,910 4,169,220
---------------------- ---------------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS
Net proceeds from real estate investments
sold or exchanged 5,245,092 0
Less: Cost of real estate investments sold or exchanged 4,906,778 0
Realization of prior periods' unrealized
gain on real estate investments sold or exchanged 125,686 0
---------------------- ---------------------
Net gain realized on real estate investments sold 212,628 0
---------------------------------------------
Change in unrealized loss on real estate investments (2,438,422) (103,393)
---------------------- ---------------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (2,225,794) (103,393)
---------------------- ---------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $2,291,116 $4,065,827
---------------------- ---------------------
---------------------- ---------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE 13
Page 7
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
---------------- ----------------
<S> <C> <C>
NET INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 6,305,232 $ 7,578,085
Net realized gain on real estate investments sold
and REIT shares exchanged 257,639 0
Change in unrealized loss on real estate investments (3,631,021) (214,908)
---------------- ----------------
Net increase in net assets resulting from operations 2,931,850 7,363,177
---------------- ----------------
NET DECREASE IN NET ASSETS
FROM CAPITAL TRANSACTIONS:
Withdrawals by partners
(6/30/99 -- 1,482,233 shares; 6/30/98 -- 0 shares) (30,000,000) 0
---------------- ----------------
Net decrease in net assets resulting from
capital transactions (30,000,000) 0
---------------- ----------------
NET (DECREASE) INCREASE IN NET ASSETS (27,068,150) 7,363,177
NET ASSETS - Beginning of period 240,160,397 219,531,773
---------------- ----------------
NET ASSETS - End of period $ 213,092,247 $ 226,894,950
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE 13
Page 8
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
------------------------- -------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 2,931,850 $ 7,363,177
Adjustments to reconcile net increase in net assets resulting
from operations to net cash flows from operating activities:
Net realized and unrealized loss on investments 3,373,382 214,908
Decrease (Increase) in:
Dividend receivable 167,275 146,999
Other assets 202,250 (202,376)
(Decrease) Increase in:
Accounts payable and accrued expenses 1,127,982 327,534
Due to affiliates (815,750) 43,992
Other liabilities 23,289 81,943
------------------------- -------------------------
Net cash flows from operating activities 7,010,278 7,976,177
------------------------- -------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold 6,257,403 0
Additions to real estate owned (864,215) (2,796,827)
Acquisitions of real estate investment trusts (25,839,278) 0
Sale of marketable securities, net 11,918,168 7,576,206
------------------------- -------------------------
Net cash flows from investing activities (8,527,922) 4,779,379
------------------------- -------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals by partners (30,000,000) 0
------------------------- -------------------------
Net cash flows from financing activities (30,000,000) 0
------------------------- -------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (31,517,644) 12,755,556
CASH AND CASH EQUIVALENTS - Beginning of period 58,578,848 12,880,560
------------------------- -------------------------
CASH AND CASH EQUIVALENTS - End of period $ 27,061,204 $ 25,636,116
------------------------- -------------------------
------------------------- -------------------------
Non-Cash Investing Activity
Exchange of shares of Meridian real estate investment trust
for shares of ProLogis real estate investment trust shares $ 10,942,566 $ --
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE 13
Page 9
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
------------------- ----------------- ------------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 1.4%
<S> <C> <C> <C>
Colonial Pipeline Co., 4.80%, July 21, 1999 $ 1,600,000 $ 1,580,587 $ 1,580,587
Federal National Mortgage Assoc., 6.07%, July 1, 1999 1,000,000 1,005,976 1,000,677
Shell Oil Co., 6.625%, July 1, 1999 100,000 100,703 100,004
John Deere Capital Corp., 6.50%, September 20, 1999 350,000 352,870 351,089
------------------- ----------------- ------------------
TOTAL MARKETABLE SECURITIES $ 3,050,000 $ 3,040,136 $ 3,032,357
------------------- ----------------- ------------------
------------------- ----------------- ------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 12.7%
American Express Credit Corp., 5.06%, July 6, 1999 $1,400,000 $1,397,442 $1,397,442
Ameritech Corp., 5.08%, July 7, 1999 1,200,000 1,197,799 1,197,799
Eastman Kodak Co., 5.06%, July 8, 1999 1,400,000 1,397,245 1,397,245
Bellsouth Telecommunications Inc., 4.95%, July 12, 1999 1,300,000 1,296,246 1,296,246
Goldman Sachs Group LP, 4.98%, July 12, 1999 1,208,000 1,203,989 1,203,989
Southern California Edison Co., 5.25%, July 12, 1999 1,200,000 1,197,725 1,197,725
Procter & Gamble Co., 5.05%, July 13, 1999 1,100,000 1,097,068 1,097,068
Colonial Pipeline Co., 4.80%, July 14, 1999 556,000 549,773 549,773
IBM Credit Corp., 5.32% July 14, 1999 1,018,000 1,015,593 1,015,593
J.P. Morgan and Co., Inc, 4.80%, July 14, 1999 1,011,000 999,812 999,812
Merrill Lynch & Co., Inc., 5.04% July 14, 1999 500,000 498,530 498,530
Kellogg Co., 4.97% July 19, 1999 600,000 597,681 597,681
General Motors Acceptance Corp., 5.06% July 23, 1999 700,000 697,048 697,048
TransAmerica Finance Corp., 5.50%, July 27, 1999 329,000 327,593 327,593
First Data Corp., 5.04% August 17, 1999 1,300,000 1,289,626 1,289,626
------------------- ----------------- ------------------
TOTAL CASH EQUIVALENTS $14,822,000 $14,763,170 $14,763,170
CASH 12,298,034 12,298,034 12,298,034
------------------- ----------------- ------------------
TOTAL CASH AND CASH EQUIVALENTS $27,120,034 $27,061,204 $27,061,204
------------------- ----------------- ------------------
------------------- ----------------- ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE 13
Page 10
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
------------------ ------------------- -------------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 6.2%
<S> <C> <C> <C>
General Motors Acceptance Corp., 5.26%, January 26, 1999 $830,000 $817,556 $817,556
American Express Credit Corp., 7.375%, February 1, 1999 325,000 329,342 325,418
Canadian Imperial Bank of Commerce, 5.55%, February 10, 1999 1,000,000 999,520 999,947
Federal National Mortgage Assoc., 5.33%, February 12, 1999 100,000 99,703 99,703
Salomon Smith Barney Holdings, Inc., 5.38%, February 16, 1999 1,720,000 1,695,137 1,695,397
General Motors Acceptance Corp., 5.29 %, February 17, 1999 650,000 641,501 641,501
Chrysler Financial Company LLC , 5.26%, February 22, 1999 2,400,000 2,365,700 2,365,700
International Lease Finance Corp. 7.50% March 1, 1999 500,000 508,250 501,367
Federal Home Loan Mortgage Corp., 5.505%, March 12, 1999 1,000,000 1,000,856 1,000,630
General Motors Acceptance Corp., 6.04%, March 19, 1999 1,000,000 1,003,480 1,000,707
Merrill Lynch & CO., Inc. 5.23%, March 19, 1999 1,790,000 1,758,820 1,758,820
Canadian Wheat Board, 5.14%, April 1, 1999 2,000,000 1,962,406 1,962,406
International Lease Finance Corp., 6.625%, April 1, 1999 375,000 377,419 375,721
CIT Group Holdings, Inc, 6.375%, May 21, 1999 400,000 402,120 400,873
Federal National Mortgage Assoc., 6.07%, July 1, 1999 1,000,000 1,005,426 1,004,779
------------------ ------------------- -------------------
TOTAL MARKETABLE SECURITIES $15,090,000 $14,967,236 $14,950,525
------------------ ------------------- -------------------
------------------ ------------------- -------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 24.4%
Countrywide Home Loans, 5.403%, January 4, 1999 $1,000,000 $999,400 $999,400
Fortune Brands Inc. 5.05%, January 4, 1999 3,463,000 3,461,057 3,461,057
Xerox Capital (Europe) PLC 5.303%, January 4, 1999 3,483,000 3,480,949 3,480,949
Federal National Mortgage Assoc, 5.77%, January 5, 1999 10,401,000 10,000,000 10,000,000
Ford Motor Credit Co, 5.454%, January 5, 1999 500,000 499,622 499,622
Pioneer Hi-BRED International, 5.665%, January 7, 1999 1,000,000 997,332 997,332
Ford Motor Credit Co., 6.11%, January 8, 1999 167,000 166,717 166,717
Deere & Co., 5.372 %, January 13, 1999 2,520,000 2,509,514 2,509,514
E.I. Du Pont De Nemours & Co., Inc. 5.277%, January 13, 1999 648,000 644,598 644,598
Household Finance Corp., 5.356 %, January 13, 1999 175,000 174,119 174,119
Household Finance Corp., 5.355% , January 15, 1999 2,343,000 2,331,899 2,331,899
Potomac Electric Power Co., 5.569%, January 15, 1999 3,122,000 3,110,930 3,110,930
Chrysler Financial Corp., 5.537%, January 25, 1999 1,164,000 1,158,121 1,158,121
Eastman Kodak Co., 5.232%, January 26, 1999 2,518,000 2,502,360 2,502,360
Cigna Corp., 5.559%, January 27, 1999 1,819,000 1,809,220 1,809,220
Cigna Group Holdings, Inc. 5.334%, January 27, 1999 1,851,000 1,835,496 1,835,496
Countrywide Home Loan, Inc. 5.506%, January 27, 1999 1,342,000 1,333,028 1,333,028
Countrywide Home Loan, Inc. 5.587%, January 27, 1999 1,177,000 1,169,197 1,169,197
General RE Corp., 5.187% , January 29, 1999 542,000 538,046 538,046
PNC Funding Corp. 5.728%, January 29, 1999 2,500,000 2,487,729 2,487,729
GTE Funding, Inc, Inc, 5.211%, February 1, 1999 2,526,000 2,506,048 2,506,048
Norwest Financial, Inc. 5.536%, February 3, 1999 3,563,000 3,539,593 3,539,593
CIGNA Corp., 5.233%, February 4, 1999 1,745,000 1,730,660 1,730,660
General Electric Capital Corp. 5.537%, February 4, 1999 3,563,000 3,539,049 3,539,049
Associates First Capital Corp., 5.241%, February 8, 1999 2,519,000 2,498,988 2,498,988
GTE Funding, Inc., 5.304%, February 11, 1999 1,000,000 993,413 993,413
------------------ ------------------- -------------------
TOTAL CASH EQUIVALENTS $56,651,000 $56,017,086 $56,017,086
CASH 2,561,762 2,561,762 2,561,762
------------------ ------------------- -------------------
TOTAL CASH AND CASH EQUIVALENTS $59,212,762 $58,578,848 $58,578,848
------------------ ------------------- -------------------
------------------ ------------------- -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE 13
Page 11
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,1999
-------------------------------------------
ESTIMATED
MARKET
COST VALUE
-------------------------------------------
REAL ESTATE AND IMPROVEMENTS (PERCENT OF NET ASSETS) 71.8%
Location Description
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lisle, IL Office Building $21,749,365 $13,598,709
Atlanta, GA Garden Apartments 15,625,613 16,105,829
Roswell, GA Retail Shopping Center 32,331,684 29,039,973
Morristown, NJ Office Building 19,417,055 11,298,390
Bolingbrook, IL Warehouse 8,948,028 7,000,000
Raleigh, NC Garden Apartments 15,824,682 16,802,000
Nashville, TN Office Building 8,497,627 10,333,426
Oakbrook Terrace, IL Office Complex 12,945,366 13,500,000
Beaverton, OR Office Complex 10,756,953 10,400,000
Salt Lake City, UT Industrial Building 5,581,807 5,628,797
Aurora, CO Industrial Building 9,706,389 9,708,815
Brentwood, TN Office Complex 9,569,828 9,500,000
-------------------------------------------
$170,954,397 $152,915,939
-------------------------------------------
-------------------------------------------
REAL ESTATE INVESTMENT TRUST (PERCENT OF NET ASSETS) 14.6%
- ----------------------------------------------------------------------------------------------------------
Prologis REIT Shares (386,208 shares) $7,579,332 $7,820,712
AMB Property Corp (42,100 shares) 933,851 955,144
Alexandria Real Est Equities (28,600 shares) 809,952 918,775
Apartment Inv & Mngt Co (14,300 shares) 583,583 613,113
Cousins Properties (14,000 shares) 501,456 493,500
Equity Office Properties Trust (20,500 shares) 599,574 525,313
Equity Residential (12,800 shares) 610,368 575,200
Excel Legacy Corp (228,600 shares) 1,139,376 1,114,425
Franchise Finance Op Amer (22,000 shares) 539,613 499,125
General Growth Properties (25,100 shares) 942,137 911,444
Highwoods Properties Inc. (18,000 shares) 483,143 484,875
Intrawest Corporation (67,500 shares) 1,114,214 1,042,031
MeriStar Hotels & Resorts Inc. (101,400 shares) 410,670 348,563
Philips International Realty (72,600 shares) 1,195,379 1,216,050
Prime Hospitality Corp. (112,500 shares) 1,320,524 1,279,688
Public Storage (76,300 shares) 2,207,270 2,122,094
Reckson Service Industries (32,800 shares) 398,066 492,000
Reckson Assoc Realty Corp (49,500 shares) 1,241,460 1,166,344
Starwood Hotels and Resorts (87,200 shares) 3,027,806 2,594,200
Sun Communities Inc. (25,800 shares) 925,036 912,675
Sunterra Corporation (37,000 shares) 520,220 474,063
US Restaurant Properties (30,300 shares) 611,606 651,450
Vornado Realty Trust (45,400 shares) 1,757,012 1,620,213
Wellsford Real Properties (45,300 shares) 491,637 486,975
Sun International Hotels Ltd (18,000 shares) 842,580 765,000
Boardwalk Equities Inc. (98,700 shares) 1,089,201 1,002,913
Meridian REIT Shares (506,894 shares) - -
-------------------------------------------
$31,875,066 $31,085,881
-------------------------------------------
-------------------------------------------
<CAPTION>
DECEMBER 31,1998
--------------------------------------------
ESTIMATED
MARKET
COST VALUE
--------------------------------------------
REAL ESTATE AND IMPROVEMENTS (PERCENT OF NET ASSETS) 64.7%
Location Description
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lisle, IL Office Building $21,634,707 $14,123,742
Atlanta, GA Garden Apartments 15,601,495 15,651,216
Roswell, GA Retail Shopping Center 32,272,627 28,649,176
Morristown, NJ Office Building 19,409,490 11,596,138
Bolingbrook, IL Warehouse 8,948,028 7,000,000
Raleigh, NC Garden Apartments 15,822,682 16,804,570
Nashville, TN Office Building 8,448,026 10,152,399
Oakbrook Terrace, IL Office Complex 12,945,366 15,750,000
Beaverton, OR Office Complex 10,728,618 11,200,000
Salt Lake City, UT Industrial Building 5,388,134 5,450,000
Aurora, CO Industrial Building 9,304,171 9,497,221
Brentwood, TN Office Complex 9,541,711 9,500,000
--------------------------------------------
$170,045,055 $155,374,462
--------------------------------------------
--------------------------------------------
REAL ESTATE INVESTMENT TRUST (PERCENT OF NET ASSETS) 4.8%
- -----------------------------------------------------------------------------------------------------------
Prologis REIT Shares (386,208 shares) - -
AMB Property Corp (42,100 shares) - -
Alexandria Real Est Equities (28,600 shares) - -
Apartment Inv & Mngt Co (14,300 shares) - -
Cousins Properties (14,000 shares) - -
Equity Office Properties Trust (20,500 shares) - -
Equity Residential (12,800 shares) - -
Excel Legacy Corp (228,600 shares) - -
Franchise Finance Op Amer (22,000 shares) - -
General Growth Properties (25,100 shares) - -
Highwoods Properties Inc. (18,000 shares) - -
Intrawest Corporation (67,500 shares) - -
MeriStar Hotels & Resorts Inc. (101,400 shares) - -
Philips International Realty (72,600 shares) - -
Prime Hospitality Corp. (112,500 shares) - -
Public Storage (76,300 shares) - -
Reckson Service Industries (32,800 shares) - -
Reckson Assoc Realty Corp (49,500 shares) - -
Starwood Hotels and Resorts (87,200 shares) - -
Sun Communities Inc. (25,800 shares) - -
Sunterra Corporation (37,000 shares) - -
US Restaurant Properties (30,300 shares) - -
Vornado Realty Trust (45,400 shares) - -
Wellsford Real Properties (45,300 shares) - -
Sun International Hotels Ltd (18,000 shares) - -
Boardwalk Equities Inc. (98,700 shares) - -
Meridian REIT Shares (506,894 shares) 10,000,005 11,554,649
--------------------------------------------
$10,000,005 $11,554,649
--------------------------------------------
--------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE 13
Page 12
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
JUNE 30, 1999
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements included herein have been
prepared in accordance with the requirements of Form 10-Q and generally accepted
accounting principles for interim financial information. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 1999 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1999. For
further information, refer to the financial statements and notes thereto
included in each Partner's December 31, 1998 Annual Report on Form 10K.
NOTE 2: COMMITMENT FROM PARTNER
In prior years, Prudential committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the Partnership
under this commitment were utilized for property acquisitions, and returned to
Prudential on an ongoing basis from the contract owners' net contributions and
other available cash. The amount of the commitment is reduced by $10 million for
every $100 million in current value net assets of the Partnership. As of March
31, 1999, Prudential's equity interest in the Partnership under this commitment
was $39.7 million.
On February 2, 1999, Prudential and its partners withdrew $30 million based on
the ratio of each Partners' equity in the Partnership. At the present time,
Prudential does not intend to make further contributions during the 1999 fiscal
year.
NOTE 3: RELATED PARTY TRANSACTIONS
Pursuant to an investment management agreement, Prudential charges the
Partnership a daily investment management fee at an annual rate of 1.25% of the
average daily gross asset valuation of the Partnership. For the six months ended
June 30, 1999 and 1998 management fees incurred by the Partnership were
$1,345,663 and $1,391,475 respectively.
The Partnership also reimburses Prudential for certain administrative services
rendered by Prudential. The amounts incurred for the six months ended June 30,
1999 and 1998 were $58,148 and $58,064 respectively, and are classified as
administrative expenses in the statements of operations.
NOTE 4: INVESTMENT IN REAL ESTATE INVESTMENT TRUST (REIT)
On March 30, 1999, the Partnership exchanged 506,894 shares of Meridian REIT for
557,583 shares of ProLogis REIT, fair value of $10,942,566, and cash of
$1,013,796 (or total fair value of $11,956,362) as a result of ProLogis'
acquisition of Meridian. Management continued applying a 3% discount to the
market value of the ProLogis REIT shares through June 29, 1999 because of the
restriction which limits the number of shares that can be publicly traded during
any six month period to 30% of the total shares originally acquired. The
application of the 3% discount was discontinued on June 30, 1999 because this
restriction no longer applied.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All of the assets of Prudential Variable Contract Real Property Account ("the
Account") are invested in the Prudential Variable Contract Real Property
Partnership ("the Partnership"). Correspondingly, the liquidity, capital
resources and results of operations for the Real Property Account are
contingent upon the Partnership. Therefore, all of management's discussion of
these items is at the Partnership level. The partners in the Partnership are
The Prudential Insurance Company of America, Pruco Life Insurance Company,
and Pruco Life Insurance Company of New Jersey (collectively, "the Partners").
(a) LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Partnership's liquid assets consisting of cash, cash
equivalents and marketable securities were $30.1 million, a decrease of $43.4
million from $73.5 million at December 31, 1998. The decrease is due primarily
to Partners' withdrawals of $30.0 on February 2, 1999.
At the present time, Prudential has decided not to make further contributions to
the Partnership for investments in real estate. On February 2, 1999, the
Partners made a $30 million withdrawal from excess cash. Further withdrawals may
be made by the Partners during 1999 based upon the percentage of assets invested
in short-term obligations and taking into consideration anticipated cash needs
of the Partnership including potential property acquisitions and capital
expenditures. Management anticipates that it's current liquid assets and ongoing
cash flow from operations will satisfy the Partnership's needs over the next
twelve months and the foreseeable future, including anticipated withdrawals by
the Partners.
The Partnership's investment policy allows up to 30% investments in cash and
short-term obligations. At June 30, 1999, 14% of the Partnership's assets
consisted of cash, cash equivalents and marketable securities. Sources of
liquidity include net cash flow from property operations, interest from short
term investments, and dividends from Real Estate Investment Trust (REIT) shares.
Capital expenditures were approximately $900,000 and were of a recurring nature.
(b) RESULTS OF OPERATIONS
The following is a brief year-to-date and quarterly comparison of the
Partnership's results of operations for the periods ended June 30, 1999 and 1998
and an explanation of REIT trading.
June 30, 1999 vs. June 30, 1998
The Partnership's net investment income for the six months ended June 30, 1999
was $6.3 million, a decrease of $1.3 million from net investment income of $7.6
million for the corresponding period in 1998. The Partnership's net investment
income for the quarter ended June 30, 1999 was $4.5 million, an increase of $0.3
million from net investment income of $4.2 million for the corresponding period
in 1998.
Revenue from real estate and improvements for the first six months of 1999 was
$10.5 million, a decrease of $1.9 million or 15.3% from $12.4 million for the
corresponding period in 1998. This decrease was primarily due to the sale of the
Partnership's industrial property located in Pomona, CA and an apartment complex
located in Farmington Hills, MI during 1998.
On March 30, 1999, the Partnership exchanged 506,894 shares of Meridian REIT for
557,583 shares of ProLogis REIT, fair value of $10,942,566, and cash of
$1,013,796 (or total fair value of $11,956,362) as a result of ProLogis'
acquisition of Meridian. The exchange resulted in a realized gain of $401,713.
Dividend income from real estate investment trusts amounted to $0.4 million for
the six months ended June 30, 1999, an increase of $0.3 million or 161.3%
compared to the corresponding period in 1998. Dividend income from real estate
investment trusts
14
<PAGE>
increased approximately $100,000 or 61.3% to $269,794 for the quarter ended June
30, 1999. These increases were primarily due to an increase in the amount
invested in REIT stocks.
Interest on short-term investments increased $378,828 or 56.2% due primarily to
a significantly higher average cash balance during the six months ended June 30,
1999 compared to the corresponding period last year. Cash and cash equivalents
maintained through the second quarter of 1999 averaged approximately $50 million
when compared to the second quarter of 1998 when average cash and cash
equivalents were approximately $30 million.
Real estate taxes increased $170,044 or 12.6% during the six months ended
June 30, 1999. This increase was primarily due to increased real estate taxes
by the industrial property located in Aurora, CO.
Real estate taxes increased $216,033 or 29.5% when compared to the second
quarter of 1998. This increase was primarily due to increased real estate taxes
by the industrial property located in Aurora, CO and the apartment complex
located in Atlanta, GA, offset by a decrease in real estate tax expense as a
result of the sale of Pomona Industrial Park.
Operating expenses decreased $168,604 or 16.6% when compared to the second
quarter of 1998 mainly as a result of the sale of the apartment complex located
in Farmington Hills, MI and a decrease in operating expenses for the retail
center located in Roswell, GA.
The following is a year-to-date and quarterly comparison of the Partnership's
property results of operations and realized and unrealized gains or losses, by
investment type.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, QUARTER ENDED JUNE 30,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Office properties $3,749,655 $3,231,226 $2,683,159 $1,722,036
Apartment complexes 916,594 2,044,531 532,143 1,006,153
Retail property 1,375,256 1,481,630 686,110 706,595
Industrial properties 156,380 1,046,931 71,130 522,401
Dividend income from real
estate investment trust 437,069 167,275 269,794 167,275
Other (including interest income
investment mgt fee, etc.) (329,722) (393,508) 274,574 44,760
--------------- --------------- --------------- ---------------
Total Net Investment Income $6,305,232 $7,578,085 $4,516,910 $4,169,220
--------------- --------------- --------------- ---------------
UNREALIZED GAIN(LOSS)
ON INVESTMENTS:
Office properties ($3,920,080) $2,662,238 ($2,596,801) $1,054,150
Apartment complexes 425,925 341,263 491,295 372,271
Retail property 331,740 (1,670,923) 480,916 (1,616,565)
Industrial properties (205,450) (332,475) (6,360) (321,561)
Real estate investment trust (263,156) (1,215,000) (808,472) (491,688)
REALIZED GAIN(LOSS) ON INVESTMENTS:
Industrial properties 43,641 -- -- --
Real estate investment trust 213,998 -- 212,628 --
--------------- --------------- --------------- ---------------
($3,373,382) ($214,908) ($2,225,794) ($103,393)
--------------- --------------- --------------- ---------------
</TABLE>
15
<PAGE>
OFFICE PROPERTIES
Net investment income from property operations for the office sector increased
approximately $518,400 or 16% for the six months ended June 30, 1999 when
compared to the corresponding period in 1998. This increase in net investment
income was primarily due to higher revenue levels experienced by the Oakbrook,
IL office complex as the result of a lease termination fee received from one of
the tenants.
Net investment income from property operations for the office sector increased
approximately $960,000 or 56% during the second quarter of 1999 when compared to
the corresponding period in 1998. The increase in net investment income was
primarily due to an increase in occupancy levels experienced by the Lisle, IL
and Morristown, NJ office complexes.
The six office properties owned by the Partnership experienced a net unrealized
loss of approximately $3.9 million during the first six months of 1999 compared
to a net unrealized gain of $2.7 million in the corresponding period in 1998.
The largest share of this net unrealized loss or 58% was primarily due to the
office property located in Oakbrook Terrace, IL. This $2.3 million (14%) value
decrease was due to costs associated with re-leasing the facility and downtime
resulting from the upcoming vacating of the property by the two tenants who
currently occupy the entire facility. The Beaverton, OR office property also
experienced a net unrealized loss of approximately $0.8 million. This decline in
value was due to a change in discounted cash flow assumptions resulting from the
large amount of Class "A" space under construction in the local market of which
less than 10% is pre-leased. In addition, a lower renewal probability in
determining the valuation of the property was utilized for Nike, a major tenant.
Tenant improvements and leasing commissions are also projected to occur earlier.
The Lisle, IL office property also experienced a net unrealized loss of
approximately $0.6 million primarily due to capital expenditures on the property
that were not reflected as an increase in market value.
The office properties experienced a net unrealized loss of approximately $2.6
million during the second quarter of 1999 compared to a net unrealized gain of
$2.0 million in the corresponding period in 1998. The loss consisted of $2.3
million at the Oakbrook Terrace, IL property and $330,000 at the Beaverton, OR
property for the reasons discussed above.
Occupancy at the Beaverton, OR, Oakbrook Terrace, IL and Brentwood, TN
properties remained unchanged from June 30, 1998 at 100%. Occupancy at the
Morristown, NJ property increased from 74% at June 30, 1998 to 85% at June 30,
1999 while occupancy at the Lisle, IL office property increased from 60% at June
30, 1998 to 89% at June 30, 1999. As of June 30, 1999 all vacant spaces were
being marketed.
APARTMENT COMPLEXES
Net investment income from property operations for the apartment sector was
$916,594 for the first six months of 1999, a decrease of $1,127,937 or 55%
compared with the corresponding period in 1998. Net investment income from
property operations for the apartment complexes was $532,143 for the second
quarter of 1999, a decrease of $474,010 or 47.1% compared with the corresponding
period in 1998. The decrease was primarily due to the sale of the apartment
complex located in Farmington Hills, MI on October 8, 1998.
The apartment complexes owned by the Partnership experienced a net unrealized
gain of $425,925 and $341,263 for the six months ended June 30, 1999 and 1998
respectively. The apartments experienced a net unrealized gain of $491,295 and
$372,271 for the quarters ended June 30, 1999 and 1998 respectively. The
majority of this change in unrealized gain was experienced by the property
located in Atlanta, GA which increased as a result of changes in the property's
leasing activity and rental rates.
The occupancy at the Atlanta, GA complex decreased from 99% at June 30, 1998 to
97% at June 30, 1999, while occupancy at the apartment complex in Raleigh, NC
increased from 90% at June 30, 1998 to 95% at June 30, 1999.
As of June 30, 1999, all vacant spaces were being marketed.
16
<PAGE>
RETAIL PROPERTY
Net investment income for the first six months of 1999 for the Partnership's
retail property (comprised solely of a retail shopping center) was $1,375,256, a
decrease of $106,374 or 7% from $1,481,630 for the six months ended June 30,
1998 due primarily to higher expense levels at the shopping center. Net
investment income for the second quarter of 1999 was $686,110, a decrease of
$20,485 or 2.9% from $706,595 for the quarter ended June 30, 1998.
The retail property experienced a net unrealized gain of $331,740 and a net
unrealized loss of $1,670,934 for the first six months of 1999 and 1998,
respectively. The increase in value for 1999 was attributable to an adjustment
in cash flow assumptions which resulted when the market re-stabilized after a
competing retail property had been built in the same general vicinity. In
addition, the overall occupancy at the property increased slightly. The complex
is currently being marketed for sale.
The retail property experienced a net unrealized gain of $480,916 and a net
unrealized loss of $1,616,565 for the second quarter of 1999 and 1998,
respectively. The net unrealized gain and loss are attributable to the
aforementioned reasons.
The shopping center was 98% occupied at June 30, 1999 and June 30, 1998. As of
June 30, 1999, all vacant spaces were being marketed.
INDUSTRIAL PROPERTIES
Net investment income from property operations for the industrial properties
decreased from $1,046,931 for the six months ended June 30, 1998 to $156,380 for
the corresponding period in 1999. Net investment income from property operations
for the industrial properties decreased from $522,401 for the quarter ended June
30, 1998 to $71,130 for the corresponding period in 1999. The majority of the
decrease was a result of the sale of Pomona Industrial Park, including the land.
The three industrial properties owned by the Partnership experienced a net
unrealized loss of approximately $205,000 and $330,000 for the six months ended
June 30, 1999 and 1998, respectively. The majority of the decrease for 1999 was
attributable to the Aurora, CO industrial property because there were capital
expenditures on the property that were not reflected as an increase in market
value.
The three industrial properties owned by the Partnership experienced a net
unrealized loss of approximately $5,000 and $320,000 for the quarters ended June
30, 1999 and 1998, respectively. The majority of the decrease for 1998 was
attributable to the industrial properties located in Aurora, CO and Pomona, CA.
The occupancy at the Bolingbrook, IL property was 100% at June 30, 1999 and June
30, 1998. The occupancy at the Salt Lake City, Utah property increased to 33% at
June 30, 1999 from 0% at June 30, 1998. The Aurora, CO property's occupancy rate
increased to 67% at June 30, 1999 from 23% at June 30, 1998. As of June 30,
1999, all vacant spaces were being marketed.
REAL ESTATE INVESTMENT TRUSTS
During the first six months of 1999, the Partnership recognized a realized gain
of $401,713 from the exchange of 506,894 shares of Meridian REIT for 557,583
shares of REIT which was offset by a realized loss of $187,715 primarily as a
result of the sale of 171,375 ProLogis REIT shares.
The Partnership recognized a net realized gain from real estate investment
trusts of $212,628 for the second quarter of 1999 primarily as a result of the
sale of ProLogis REIT shares.
Management continued applying a 3% discount to the market value of the ProLogis
REIT shares through June 29, 1999 because of the restriction which limits the
number of shares that can be publicly traded during any six month
17
<PAGE>
period to 30% of the total shares originally acquired. The application of the 3%
discount was discontinued on June 30, 1999 because this restriction no longer
applied
OTHER
Other net investment income increased $63,786 or 16.2% during the six months
ended June 30, 1999. This includes interest income from short-term investments,
investment management fees, and expenses not related to property activities. The
increase was due primarily to an increase in interest income from short-term
investments coupled with a decrease in investment management fees being offset
by an increase in expenses not related to property activities.
Other net investment income increased $229,813 or 513.4% during the second
quarter of 1999. Interest income on short-term investments increased primarily
as a result of a the Partnership maintaining a significantly higher cash balance
when compared to the corresponding period last year as mentioned previously. In
addition, investment management fees and expenses not related to property
activities decreased when compared to the same quarter last year.
(c) THE YEAR 2000 ISSUE
Prudential has addressed the Year 2000 issue on an enterprise-wide basis;
therefore, it is not possible to differentiate the Partnership's Year 2000 issue
from that of the Prudential. Refer to management's discussion of the Year 2000
issue in the December 31, 1998 Form 10-K for the steps taken by Prudential to
mitigate the Year 2000 risks.
The Business Application, Infrastructure and Business Partners components of
Prudential's Year 2000 project are substantially complete. Although a small
number of projects did not meet their targeted completion dates in the second
quarter, Prudential expects all projects will be completed by September, 1999.
Accordingly, these delays do not have a significant impact on the timing of the
project as a whole.
Prudential believes that the Year 2000 project is substantially on schedule.
Prudential is continuing to review and update their contingency plans until 2000
in an effort to reduce the level of uncertainty about the effect of the Year
2000 issue and further mitigate risk. Prudential believes that, with the
completion of the Year 2000 program as scheduled, the possibility of significant
interruptions of normal operations will be reduced.
Prudential has investment securities that are both publicly traded and privately
placed. Prudential is exposed to the risk that issuers of these investments will
be adversely affected by Year 2000 issues. Prudential assesses the impact which
Year 2000 issues may have on our investments as part of due diligence for
proposed new investments as well as their ongoing review of current portfolio
holdings. Any recommended actions with respect to particular investments
consider the disclosed potential impact of Year 2000 on the issuer.
There were no Year 2000 costs allocated directly to the Partnership to date and
none are anticipated. The discussion of the Year 2000 issue herein, and in
particular Prudential's plans to remediate this issue and estimated costs
thereof, are forward-looking in nature. See cautionary statement below relating
to forward-looking statements.
(d) INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in Management's Discussion and Analysis may
be considered forward-looking statements. Words such as "expects," "believes,"
"anticipates," "intends," "plans," or variations of such words are generally
part of forward-looking statements. Forward-looking statements are made based
upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Partnership. There can be no
assurance that future developments affecting the Partnership will be those
anticipated by management. There are certain important factors that could cause
actual results to differ materially from estimates or expectations reflected in
such forward-looking statements including without limitation, changes in general
economic conditions, including the performance of financial markets and interest
rates; market acceptance of new
18
<PAGE>
products and distribution channels; competitive, regulatory or tax changes that
affect the cost or demand for the Partnership's products; and adverse litigation
results. While the Partnership reassesses material trends and uncertainties
affecting its financial position and results of operations, it does not intend
to review or revise any particular forward-looking statement referenced in this
Management's Discussion and Analysis in light of future events. The information
referred to above should be considered by readers when reviewing any
forward-looking statements contained in this Management's Discussion and
Analysis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is not subject to significant exposure to market rate risk for
changes in interest rates because the Partnership's financial instruments
consist primarily of short-term fixed rate commercial paper and does not use
derivative financial instruments. Further, by policy, the Partnership places its
investments with high quality debt security issuers, limits the amount of credit
exposure to any one issuer, limits duration by restricting the term, and holds
investments to maturity except under rare circumstances. At June 30, 1999, 86%
of the Partnership's investments were in real estate.
19
<PAGE>
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Contract owners participating in the Real Property Account have
no voting rights with respect to the Real Property Account.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4.1 Revised Individual Variable Annuity Contract filed as
Exhibit A(4)(w) to Post-Effective Amendment No. 8 to Form N-4,
Registration Statement No. 2-80897, filed October 23, 1986,
and incorporated herein by reference.
4.2 The Discovery Plus Contract, filed as Exhibit (4)(a) to
Form N-4, Registration Statement No. 33-25434, filed
November 8, 1988, and incorporated herein by reference.
4.3 Custom VAL (previously named Adjustable Premium VAL) Life
Insurance Contracts, filed as Exhibit 1.A.(5) of Form S-6,
Registration Statement No. 33-25372, filed November 4,
1988, and incorporated herein by reference.
4.4 Variable Appreciable Life Insurance Contracts, filed as
Exhibit 1.A.(5) to Pre-Effective Amendment No. 1 to Form S-6,
Registration Statement No. 33-20000, filed June 15, 1988, and
incorporated herein by reference.
(b) REPORT ON FORM 8-K
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
in respect of
Prudential Variable
Contract Real Property Account
(Registrant)
------------------------------------------------------------
Date: August 16, 1999 By: /s/
---------------------------- ----------------------------------
Esther H. Milnes
Vice-President
Date: August 16, 1999
---------------------------- By: /s/
----------------------------------
Dennis Sullivan
Vice-President and Deputy Controller
21
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF ASSETS AND LIABILITIES;STATEMMENTS FO OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000846581
<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 27,061,204
<SECURITIES> 3,032,357
<RECEIVABLES> 0
<ALLOWANCES> 71,600
<INVENTORY> 0
<CURRENT-ASSETS> 217,516,644
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 217,516,644
<CURRENT-LIABILITIES> 4,424,397
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 213,092,247
<TOTAL-LIABILITY-AND-EQUITY> 217,516,644
<SALES> 0
<TOTAL-REVENUES> 11,974,956
<CGS> 0
<TOTAL-COSTS> 5,669,724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,931,850
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,931,850
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,931,850
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
FO NET ASSETS;STATEMENTS FO OPERATIONS AND CHANGES IN NET ASSETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000846581
<NAME> PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 82,219,964
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 82,219,964
<TOTAL-LIABILITY-AND-EQUITY> 82,219,964
<SALES> 0
<TOTAL-REVENUES> 2,511,046
<CGS> 0
<TOTAL-COSTS> 236,648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 867,348
<INCOME-TAX> 0
<INCOME-CONTINUING> 867,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 867,348
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
